How To Drive The Irs Crazy

Looking for an easy way to increase your business deductions?
Look no further than your driveway
First, the general rule: your vehicle is deductible to the
extent you use it for business
So, if you drive your car 100% for business, all car- related
expenses are deductible
But if you use it less than 100% for business, do not despair
Less-than-100% use is very typical among small business owners
and the self-employed — you’ll still come out way ahead by
keeping good vehicle expense records
For example, if you drive your car 75% for business, then you
get to deduct 75% of your vehicle expenses
Now to the fun part
There are two methods for reporting your car expenses: 1 Actual
Expense Method 2 Mileage Method
With the Actual Expense Method, you have to keep track of all
your vehicle related expenses, such as: — gasoline — oil –
maintenance repairs — insurance — license registration –
wash wax — supplies equipment — depreciation expense
(including Section 179 deduction) — lease payments — loan
interest — state and local taxes
So you add up all those deductions and multiply the total by
your business use percentage, which is determined by dividing
business miles by total miles driven
The Mileage Method works like this: instead of tracking all the
actual expenses listed above, you only need the number of
business miles driven, which is multiplied by the standard
mileage rate published each year by the IRS
For 2003 the mileage rate was 36 cents per mile For 2004 the
mileage rate was 375 cents per mile For 2005 there are two
mileage rates: 405 cents/mile from January 1 through August 31,
and 485 cents/mile from September 1 through December 31 For
2006 the mileage rate is 445 cents per mile
If you drove your car 10,000 miles in 2005, your deduction is at
least $4,000 (depending on how many miles you drove during the
last four months) — regardless of what your actual expenses
might have been
NOTE: There are 2 actual expenses that are also deductible under
the Mileage Method — interest and taxes
Now for the obvious question: Which method is better?
Well, here’s how I look at it If you want to get the highest
deduction, you should “run the numbers” under both methods and
then use whichever method results in the higher deduction
You are allowed to pick whichever method you want
But once you pick a method, be careful to follow the rules on
“switching” from one method to the other: You can switch from
the Mileage Method to the Actual Method, but generally are not
allowed to switch from the Actual Method to the Mileage Method
Having said that, let’s be practical If you hate recordkeeping,
use the Mileage Method It’s much simpler and faster You won’t
have to keep all those receipts
Even the Mileage Method requires some recordkeeping, however
You should keep a log that documents the business use of the
vehicle Here are 3 IRS-approved car logs:
1 Daily Log Yep, you just record all business miles for all
365 days of the year
2 90-Day Log Here’s a little-known rule — instead of keeping
mileage records for the entire year, you can get by with just a
representative portion of the year — and a 90-day period is
considered an adequate representation of the entire year
So you would keep a Daily Log for a 3-month period, say January
through March To get your annual mileage total, you multiply
the 3-month total by 4
3 One-week Log Here’s another short-cut: The IRS also allows
you to keep a log for just the first week of each month Then
you multiply that week’s mileage by 4 to get the monthly total
Regardless of which method you use, there’s a goldmine of
deductions sitting right there in the garage

Tags | business, deduction, depreciation, expenses, insurance, license, maintenance, method, mileage, records, result, section, standard, supplies